Wealth Optimization for Professional
Athletes and Entertainers
WEALTH OPTIMIZATION FOR PROFESSIONAL ATHLETES AND ENTERTAINERS
2 Table of contents
Investing involves risk. There is always the potential of losing money when you invest in securities.
Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets.
Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
Merrill Lynch, Pierce, Fenner & Smith Incorporated (also referred to as “MLPF&S” or “Merrill”) makes available certain investment products sponsored, managed, distributed or provided
by companies that are affiliates of Bank of America Corporation (“BofA Corp.”). MLPF&S is a registered broker-dealer, registered investment adviser, Member SIPC and a wholly owned
subsidiary of BofA Corp.
Trust, fiduciary, and investment management services are provided by Bank of America, N.A. and its agents, Member FDIC. Insurance and annuity products are offered through Merrill
Lynch Life Agency Inc. (“MLLA”), a licensed insurance agency. Bank of America, N.A., and MLLA are wholly owned subsidiaries of BofA Corp.
Banking products are provided by Bank of America, N.A. and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation.
Investment products offered through MLPF&S and insurance and annuity products offered through MLLA:
Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value
Are Not Deposits
Are Not Insured by Any Federal
Government Agency
Are Not a Condition to Any
Banking Service or Activity
Table of Contents
Powerful ways Merrill can help 3
Sophisticated strategies designed with you in mind 4
“Thank you” trap 5
Are your current advisors up to it? 6
Checklist for selecting or retaining a wealth advisor 6
A focus on financial education 7
A difference in planning approaches 8
Tips for rookies and fledgling entertainers 10
Advanced planning for elite athletes and A-list entertainers 14
•
•
•
Estate tax considerations 14
Philanthropic goals 15
Asset protection strategies 17
Conclusion 19
WEALTH OPTIMIZATION FOR PROFESSIONAL ATHLETES AND ENTERTAINERS
3Table of contents
Congratulations! Your countless hours of hard work and personal sacrifices
have paid off. Using the unique skills you developed along the way, you are
now among an elite group of individuals who can practice their sport or cra
as a paid athlete or entertainment professional.
The physical and emotional skills that you used to build your career and
create your wealth are very different from the financial skills that are needed
to help preserve and grow it. Every financial decision you make today will
affect you and your family’s future.
Just as your professional career has started, so has your wealth building
j
ourney. This means creating a wealth management strategy that will
allow you to live the life you have always wanted and pass wealth down to
the heirs and charities of your choosing. Your Merrill advisor will help you
with these decisions by delivering cutting-edge wealth planning advice and
investment strategies, helping to keep you on track as you focus on your
profession and your future.
Powerful ways Merrill can help
We recognize that you are a sports and entertainment “business enterprise.”* Like a chief
executive officer or president of a well-run company, you will need to delegate critical tasks
to trusted individuals so that you can concentrate on other things — like winning the next
game, writing the next song or rehearsing for the next performance.
Successful businesses typically deploy teams of experts to handle complex tasks like
i
nvestments, taxes, insurance, lending/banking needs and reporting obligations. This is so
each employee can contribute their expertise to the business to help make it as successful
as possible. As the CEO of your “business,” think about how you can bring in the right people
for the right tasks.
By working with your Merrill advisor, you’ll have access to the full breadth of our global
guidance, services and solutions through a single point of contact. Your Merrill advisor will
use the latest technology, in-depth research and cutting-edge tools to create and help
manage a comprehensive wealth management plan tailored specifically for you and your
family. The more we can do for you, the more you can concentrate on your sport or cra —
and personal life.
* The use of the term “entertainers” in this paper is meant to describe a broad spectrum of talent, including, but not limited to:
actors, artists, choreographers, comedians, dancers, designers, directors, magicians, musicians, producers, screenwriters, singers,
songwriters and writers.
WEALTH OPTIMIZATION FOR PROFESSIONAL ATHLETES AND ENTERTAINERS
4 Table of contents
Sophisticated strategies designed with you in mind
Focusing on you
• Goals-based wealth management
1
• Investment management
1
• Financial statement (budgeting/
forecasting) reporting
1
• Online account access, bill pay
and fund transfer
1
• Lifestyle financing
(such as planes, yachts,
art & collectibles)
2
Leaving a philanthropic
legacy
• Donor advised funds
2
• Charitable planning
1
• Charitable trusts:
2
Cha
ritable lead trusts &
Charitable remainder trusts
2
• Private foundations
1
• Giing strategies
1
Investing towards
your goals
• Core equity & fixed
income portfolios
1
• Private placements
1
• Hedge funds
1
• Alternative investments
1
• Concentrated stock
1
• Retirement strategies
1
Accessing cash when
you need it from
Bank of America
2
• Major asset financing
• Home financing solutions
• Loan-based diversification
strate
gies
• Credit cards
• Custom credit solutions
Passing on wealth efficiently
• Personal trust services
2
• Life insurance trusts
2
• Estate settlement and administration
2
• Family wealth education & governance
1
• Family office solutions
4
Navigating risk
• Portfolio risk management
strategies
1
• Property & casualty
insurance reviews
1
• Life insurance trusts
2
• Wealth replacement trusts
2
• Asset preservation strategies
1
1
Merrill Lynch, Pierce, Fenner & Smith Incorporated (also referred to as “MLPF&S” or “Merrill”) makes available certain investment products sponsored, managed, distributed or provided by companies
that are affiliates of Bank of America Corporation (“BofA Corp.”). MLPF&S is a registered broker-dealer, registered investment adviser, Member SIPC and a wholly owned subsidiary of BofA Corp.
2
Banking, mortgage and home equity products offered by Bank of America, N.A., and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation.
3
Merrill Lynch Life Agency Inc. (“MLLA”) is a licensed insurance agency and wholly owned subsidiary of BofA Corp. Insurance and annuity products are offered through MLLA, a licensed insurance agency.
4
Merrill Family Office Services are offered through Merrill Lynch, Pierce, Fenner & Smith Incorporated (also referred to as “MLPF&S” or “Merrill”). In connection with its Family Office Services,
Merrill is not acting in the capacity as a broker-dealer, nor as a registered investment adviser. Accordingly, through its Family Office Services, Merrill is not offering, and its clients are not paying
for, advice with respect to securities, the purchase or sale of securities, or the valuation thereof, nor do Merrill’s Family Office Services encompass financial planning, discretionary account
management, or any other securities-related accounts, products or services. Merrill offers a broad array of brokerage and investment advisory accounts, products and services through other
parts of its business outside of Family Office Services, which are subject to separate agreements, disclosures, and fee arrangements, and may be procured by applying or enrolling and contracting
through those other business channels. Please contact your Financial Advisor or Private Wealth Advisor with questions regarding Merrill’s brokerage or investment advisory offerings.
Managing the impact of taxes
• Insurance planning & services
3
• Tax loss harvesting strategies
1
• Philanthropic giving
2
• Income deferral strategies
1
You, your
family and
your legacy
Global Investments
Bank of
America Cash
Management,
Liquidity &
Lending
Strategies for Business
Owners
Wealth
Planning
Your Merrill advisor can provide access to a range of financial offerings. However, we know that you don’t need
everything listed here all at once. Your Merrill advisor, at the forefront of their advice, will work with you to
assess what you need and when you need it.
WEALTH OPTIMIZATION FOR PROFESSIONAL ATHLETES AND ENTERTAINERS
5Table of contents
“Thank you” trap
We recognize that you didn’t do it alone — that you’re most likely where you are today
because of the support of so many wonderful individuals. However, unless those
people possess certain specialized skills, licenses and experience, you should avoid
the temptation to fill certain financial roles with family members and friends as a
way to thank them for their support. Unfortunately, assigning key money-related roles
to family members and friends has been known to produce improper oversight, fraud,
conflicts of interest, self-dealing and personal biases into the decision-making process.
Using a team of licensed financial professionals like our advisors at Merrill can help
you identify and reduce or eliminate these risks.
Selecting Merrill vs. Family/Friends Professional
Family/
Friend
Subject to personal biases No Yes
Compensated Yes Yes
Serving as wealth manager is their "professional calling" Yes No
Vast resources/worldwide footprint Yes No
Experience serving clients in the sports and
entertainment industry
Yes Likely no
Access to investment, philanthropy,
lending and trust
planning services through a single point of contact
Yes No
Held to highest fiduciary standards under the law Yes Yes
Permanence — life span is multi-generational
and perpetual
Yes No
Subject to government oversight and recurring
internal audits
Yes No
Expert in investment reporting Yes No
Available any business day of the year Yes No
Teams of support staff Yes No
Our team of licensed
financial professionals
at Merrill can help
you with long-term
wealth management
strategies for both
your professional and
personal career.
“
“
Greg McGauley,
Managing Director
Head of Merrill Private
Wealth Management
WEALTH OPTIMIZATION FOR PROFESSIONAL ATHLETES AND ENTERTAINERS
6 Table of contents
Are your current advisors up to it?
Checklist for selecting or retaining a
wealth advisor
*
Once anyone begins to enjoy a certain amount of financial success, the complexities
that can swirl around financial decisions can be overwhelming. That’s because for
most people who did not grow up wealthy, the issues that higher levels of wealth
present are completely novel — not only to the individual making the money, but
oen to their current advisors, whose skill level or experience falls short of their
clients’ new wealth.
Athletes and entertainers have unique planning issues. They need access to
wealth advisory firms, like Merrill, that can provide access to specialists in many
different disciplines (as highlighted on page 4).
Is your advisor someone who
can adequately educate you
and your family?
What is the range of services
provided by your advisor?
How many (and what
types of) clients does your
advisor serve?
How does the advisor charge
for services?
Has the advisor asked about
the purpose of your wealth?
Who is on the advisor’s
team, and what is their level
of experience?
* A Guide to Navigating Newly Created Wealth, Merrill’s Center for Family Wealth™ (2023).
WEALTH OPTIMIZATION FOR PROFESSIONAL ATHLETES AND ENTERTAINERS
7Table of contents
A focus on financial education
A common thread that exists for many sports and entertainment professionals
is their general unfamiliarity with investment management, tax planning, asset
preservation and estate planning. This is quite normal given that they have likely been
focusing most of their time and effort on becoming successful in their fields.
However, as you start making money and accumulating wealth, it is critical for you
to acquire some basic financial skills — to understand the planning issues that may
have a meaningful impact on your family’s standard of living both now and in the
future. It’s important to build a good foundation to understand how your money
works best for you.
To assist you in getting up to speed and staying abreast of what matters most in
your financial life, Merrill has a vast library of educational tools at your disposal,
including: videos, checklists, calculators, assessment tools and a wide array of digital
content and resources.
Snoop Dogg
“
I
f you stop at
general math,
you’re only going
to make general
math money.
“
Resources for you
• Ongoing, timely Bank of America
Chief Investment Office (CIO)
Market Updates
• Extensive global research
1
on a wide
variety of economic, investment
and tax law change considerations
• Topical wealth planning whitepapers
(Retirement, Divorce, Life Insurance,
Family Governance, Art &
Collectibles, Private Foundations,
Education Funding, Exit Planning
for Private Business Owners,
Non-Fungible Tokens, Hedge
Fund Strategies & Alternative
Investments and more)
• Topical investment whitepapers
(Investment Trends, Portfolio
Strategies, Today’s Market,
Finances and more)
• National client calls
• Topical client seminars
• Financial education “boot camps”
(skill-building & peer-sharing) in
partnership with top universities like
Wharton, Georgetown and UCLA
• Customized training based on a
family’s need or request
See back page for additional disclosures.
Source: U.S. News, November 17, 2009.
WEALTH OPTIMIZATION FOR PROFESSIONAL ATHLETES AND ENTERTAINERS
8 Table of contents
A difference in planning approaches
Athletes
According to the U.S. Bureau of Labor Statistics,* there are approximately 17,000
professional athletes in the United States. The majority of these athletes do not hold
second jobs: Their sports activities are their sole source of income. Most professional
athletes are between 20–30 years old, with careers that only last from 3.5 to 9.5 years.
Most of their income is earned in the middle and latter parts of their careers. To make
planning even more challenging, an athlete’s income cannot be fully counted on
because it is oen subject to interruptions and/or reductions — due to injuries, poor
performance, on-the-field and off-the-field personal conduct clauses, lockouts and salary
caps. These inherent risks should be factored into every professional athlete’s planning.
Compared to other professionals, an athlete’s earnings are highly concentrated among a few
short years in the early part of their lives. Therefore, the greatest challenge for any athlete
is how to build enough wealth during their career to continue their lifestyle aer retirement.
Since most athletes retire by the time they are 30, they should draw up financial plans
(in theory) that are designed to make their savings last for another 50 years — taking
into account the various opportunities to earn money aer retiring from their sport.
Because athletes finish their professional careers comparatively early in their life
span, many transition into second full-time careers. For some athletes, these second
careers are directly related to what they did as professional athletes (for example,
coaching or sports analyst) — while in other cases, their second careers have nothing
to do with their sport (such as a restaurateur, politician or real estate developer).
Professional athletes in U.S.
17,000
Age
20–30 years old
Career lifespan
3.5–9.5 years
While athletes and entertainers share many of the same challenges when managing their wealth and personal
careers, there are usually stark differences between these groups regarding timing and sources of income.
Your advisor will consider these differences when helping you build a customized strategy.
Jameel McClain of the Baltimore Ravens
“
It’s always going to be a challenge to tell someone, ‘The moment you get in, you
should be thinking about getting out of it.’ I don’t want to doubt anybody’s drive or
ability, but I want to give them the reality and make it a little less harsh.
“
Source: Baltimoresun.com, Sept. 13, 2019.
* Source: U.S Bureau of Labor Statistics, April 18, 2022.
Source: U.S Bureau of Labor Statistics, April 18, 2022.
WEALTH OPTIMIZATION FOR PROFESSIONAL ATHLETES AND ENTERTAINERS
9Table of contents
* Source: Artists and Other Cultural Workers: A Statistical Portrait, National Endowment for the Arts, April 2019.
Entertainers
According to the National Foundation for the Arts,* there are approximately 2.5
million entertainers in the United States. Most of these entertainers have a second
job. They usually have modest incomes from their cras in the early years, and tend
to earn and save more in later years. Compared to professional athletes, entertainers
tend to have longer careers, oen spanning decades. But unlike athletes, their
earnings tend to be sporadic — and come mostly in the latter part of their careers.
It is never too early in your professional career to think about what comes next.
Putting together a succession plan now can help alleviate some of the fear and
anxiety that may arise when you voluntarily or involuntarily stop doing the only thing
you’ve done for most of your life.
Earnings profile over time
Chart is for illustrative purposes only.
Professional athletes Entertainers
$
10 YR 20 YR0 30 YR 40 YR 50 YR
Entertainers in U.S.
2.5 million
Career lifespan
Decades
Source: Artists and Other Cultural Workers: A Statistical
Portrait, National Endowment for the Arts, April 2019.
Many athletes and entertainers embark on a second career aer their playing
days or gigs come to an end. While these individuals may adjust to another
career in the same industry, others move on to an entirely different business.
However, these second careers likely will not have the same income stream as
their first careers. Working with a Merrill advisor will help you plan accordingly
for a second career and offer asset preservation strategies to help make your
wealth last as long as possible.
2nd Career: Retirement
WEALTH OPTIMIZATION FOR PROFESSIONAL ATHLETES AND ENTERTAINERS
10 Table of contents
Tips for rookies and fledgling entertainers
Assemble a team of qualified professionals
A successful team or group includes a variety of people who are experts in their chosen
fields, working together toward a common goal. Your financial advisors should operate in
the same way in supporting your goals. For example, when purchasing life insurance, it is
oen necessary to engage a trust and estate lawyer, insurance specialist, trust company
specialist and financial planner. This team can assist you with determining the size and type
of the policy, the best carrier and policy for your stated goals, and the most tax-efficient
way to own and administer the policy. So when you pull together trusted persons to rely
upon, we suggest you build a deep bench of professionals that also includes:
CPA Financial advisor
Investment
manager
Trusts and
estates lawyer
Life insurance
specialist
Property and casualty
insurance specialist
The importance of a budget
The number of professional athletes in the U.S. who file for bankruptcy within five
years of leaving their sport is a staggering 78%. Unfortunately, overspending and
overestimating the number of years they could remain in their sport have caused many
well-known athletes to lose it all. This does not have to be you! By using some basic
financial tools and practices, you can avoid being part of this unfortunate statistic.
Create a balance sheet, cash-flow summary, income and expense summary
(know what you earn aer taxes — and keep track of what you spend, a.k.a.
your “personal burn rate”)
Establish savings goals (have a realistic view of your earnings potential and
estimated years in your profession)
Participate in qualified and nonqualified retirement plans
Avoid going into debt (pay off mortgages, credit cards, personal lines of
credit, student loans)
Manage your existing debt efficiently
Save more than you spend, and avoid supporting an entourage of people
before you have put away savings for yourself
Avoid making large luxury purchases and “keeping up with the Joneses”
(buying expensive cars, boats, planes, jewelry and houses)
Professional athletes who file
for bankruptcy within 5 years.
78
%
Source: Fox Business News, Feb. 2022.
WEALTH OPTIMIZATION FOR PROFESSIONAL ATHLETES AND ENTERTAINERS
11Table of contents
If you are an entertainer in the early part of your career, chances are you’re not
making much money from your hard work. That’s why it’s important to have a
process in place to save money for those “rainy days” between gigs, until your cash
flow becomes larger and more dependable. As you slowly build your net worth, you
can devote some of your excess capital — if not needed for expenses or rainy-day
savings — to making investments for the future.
Pay your federal and state income taxes
Perhaps more than any other group of professionals, athletes and entertainers tend
to have varied and complex sources of income. That income can be a challenge to
report properly to the state and federal taxing authorities. You want to get your tax
filings correct from the start!
Multiple revenue streams
Signing Bonus Incentives Endorsements
Licenses Salary Performance Bonuses
Deferred Compensation Merchandise Contingent Compensation
Sponsorships Appearance Fees Residuals
Royalties Social Media Platforms NF Ts
The jock tax
State level income tax filings tend to make tax compliance for athletes and
entertainers very complicated. Athletes and entertainers can be subject to state
income taxes in multiple states for services performed in those states. For example, a
National Football League player can expect to file between 8 to 12 non-resident state
income tax returns a year. A National Basketball Association player can expect to file
between 16 to 20 non-resident state income tax returns a year.* This multi-state income
ta
x liability is oen referred to as the “jock tax” but it can apply to any person who
performs services in more than one state if certain income and/or presence tests are
reached. Each state with an income tax will have its own rules as to when its income
tax law applies.
Will Rogers
“
T
oo many people
spend money
they haven’t
earned, to buy
things they don’t
want, to impress
people they
don’t like.
“
* Source: Andrew Osterland, CNBC; State Tax Departments Set their Sights on Pro Athletes’ Earnings (Jan. 11, 2021).
Source: Albuquerque Journal, 1975.
WEALTH OPTIMIZATION FOR PROFESSIONAL ATHLETES AND ENTERTAINERS
12 Table of contents
Last will and testament
(or “pour-over” will plus
revocable trust)
Durable power of attorney
(allows someone other than you
to make financial decisions for you
when you can’t)
Advance health care directive
(allows someone other than you
to make medical decisions for you
when you can’t)
Signing bonuses are typically taxed on the federal level and in the state where the
athlete lives. Consequently, establishing residency in low or no state income tax
states like Florida or Texas can avoid having to pay state level income taxes on a huge
signing bonus. However, not all bonuses are created equal. Bonuses that are paid for
completing a service (such as winning an Oscar, voted MVP, winning a batting title)
can be subject to state income tax in multiple states if such services were performed
in those states.
Underpaying or not paying the proper amount of taxes owed will subject you to fines,
penalties and interest — and sometimes those penalties can be greater than the
amount of unpaid taxes. Once you are in arrears with payments owed to the IRS and
state taxing authorities, digging yourself out of back taxes, penalties and interest
charges can be extremely difficult and expensive. In some instances, failure to pay taxes
can lead to criminal penalties. In fact, that’s how the infamous gangster Al Capone
was eventually put behind bars.
Unfortunately, there are not many legal options available that can shelter your
salary and bonuses, but there are strategies you can consider. Your Merrill advisor
can bring a team of planning specialists — who can lay out options for you and
your tax advisors to consider.
Basic estate planning documents
Every professional athlete and entertainer should have a set of basic estate planning
documents that address what will happen upon their death or if they become
incapacitated. These documents are crucial because they inform people what to do
with your property or your body if you are unable to tell them.
At a minimum,
we suggest that
you have the
following
in place:
If you are single and
contemplating marriage, you
should also consider putting a
prenuptial agreement in place
— to protect your current and
future net worth from a
potential divorce.
Merrill has gathered insights
and created tools meant to
help guide you and your future
spouse through this process,
like the Merrill Center for Family
Wealth’s Tying a Better Knot and
Taking the Taboo out of Money
and “I Do.” Ask your advisor for
these resources.
WEALTH OPTIMIZATION FOR PROFESSIONAL ATHLETES AND ENTERTAINERS
13Table of contents
Max out your retirement savings options
Most professional players associations in the U.S., and many of the entertainment guilds/
associations, offer their members the ability to make annual contributions to a qualified
retirement plan such as a 401(k) plan. These tax-advantaged savings vehicles provide
numerous benefits. When you make pre-tax contributions to the plan, your taxable income
in the year of contribution is reduced — potentially resulting in less income taxes for that
year. While your pre-tax money is invested in the 401(k) plan and has the potential to earn
income, that income will not be subject to federal income tax. Also, most states have laws
that protect 401(k) assets from the participant’s creditors. Depending on the terms of your
plan, you can control the investments in the account, and you control when you withdraw
money from the account. It’s only when you withdraw that you have to pay ordinary income
tax on the amount of the distribution. In addition, withdrawals made before age 59½ are
generally subject to an additional 10% federal income tax, unless an exception applies.
You should be aware of whether your association or guild offers a pension plan, how it
works, and how best to use it in conjunction with other retirement plans like 401(k)s
and individual retirement accounts (IRAs). Pension plans are another type of qualified
retirement plan offered by some employers. Generally, these plans provide participants
with an accrued benefit usually payable as an annual or monthly payment over a period of
years, usually for life, that typically start at a specified time (usually when the participant
reaches “normal retirement age” as defined under the applicable plan). Pension plans may
permit distributions to commence before normal retirement age, and in some cases before
reaching age 59½. To qualify, each player or entertainer must satisfy their plan’s specific
qualifications and vesting rules. The accrued benefit is determined under the plan’s accrual
formula and tends to be based on how long the employee works for the organization.
Another retirement solution typically available to entertainers — because they are
usually self-employed — is to fund a simplified employee pension called a SEP-IRA.
Just like IRAs, SEP-IRAs are tax-advantaged income deferral solutions that have been
authorized by Congress. Distributions are taxed under federal ordinary income tax
rates, and any distributions prior to 59½ would be subject to an additional 10% tax.
Your Merrill advisor can work with you to determine which plans are available to you
and which one may best support your goals.
401(k) SEP-IRA
• Your federal taxable income in the
year of contribution is reduced —
potentially resulting in less federal
income taxes for that year
• Pre-tax money will not generally be
subject to federal income tax until
distributed
• Most states have laws that protect
401(k) assets from creditors
• 10% additional federal tax for
early withdrawals
• Contributions an employer can
make to an employee’s SEP-IRA
cannot exceed the lesser of: 25%
of the employee’s compensation,
or $66,000 for 2023 ($61,000
for 2022, $58,000 for 2021 and
$57,000 for 2020)
• Distributions are taxed under
federal ordinary income tax rates
• 10% additional federal tax for early
withdrawals
In 2023, the maximum
401(k) contribution
$22,500
If 50 or over at any time
during the calendar year, you
can contribute an additional
$7, 50 0
Additional federal tax on
withdrawals before age 59½
unless an exception applies
10
%
Some employers will
match some or all of your
401(k) contributions, which
would allow more than
$22,500
(plus an additional $7,500 if
50 or over) to be contributed
to your plan in 2023.
WEALTH OPTIMIZATION FOR PROFESSIONAL ATHLETES AND ENTERTAINERS
14 Table of contents
Take ownership of your financial destiny
Managing your wealth does not have to be your second (or third) full-time job.
You should, however, devote enough time and attention to your assets, liabilities
and investment performance to become well-informed in order to make informed
and reasonable decisions.
Scheduling regular meetings with your advisors is a good place to start. Occasionally,
these meetings should consist of a number of different advisors from numerous
disciplines in order to collaborate and determine an appropriate path forward
for you. By establishing short- and long-term goals and objectives, creating
benchmarks against which you can measure your advisors’ ongoing performance,
and checking in with those advisors on a regular basis, you can stay fully abreast of
how close you are to attaining your goals — and quickly revisit or correct anything
that is not turning out to your satisfaction.
Estate tax considerations
If you have managed to amass a small fortune, further advanced planning is required
in order to protect your money from creditors and to reduce (and sometimes
eliminate) estate taxes. For example, the current federal estate tax is 40%. In 2023,
federal law exempts up to $12.92 million per person from federal estate tax. That
means married athletes and entertainers can shield up to $25.84 million from federal
estate taxes. If you die with an estate worth more than these exemption amounts,
it may be subject to a 40% federal estate tax on the excess — unless you engage in
advanced planning during your lifetime.
For others with estates valued at less than $12.92 million (or $25.84 million for
married couples), their estates could be subject to federal estate tax in the future.
Under the 2017 Tax Cuts and Jobs Act, the estate tax exemption amount is scheduled
to drop to $5 million in 2026, adjusted for inflation. Based on current interest rates in
effect as of the date of this paper, Merrill is projecting that the exemption will drop
and be adjusted to $6.5 million in 2026. This means that if the exemption drops to
$6.5 million per taxpayer in 2026, the estate of a single person above $6.5 million
could be hit with a 40% federal estate tax, and married couples could only shelter
$13 million before potentially being subject to estate taxes on the excess. What does all
of this mean? For very wealthy persons, failure to use available exemptions before the
end of 2025 may cost their beneficiaries millions of dollars per parent in estate taxes.
Take advantage of
available exemptions
Failure to use up available
exemptions before the
end of 2025 can cost
beneficiaries millions of
dollars in estate tax
Advanced planning
is necessary
Protect your money from
creditors and reduce
estate taxes
Advanced planning for elite athletes and
A-list entertainers
While your advisors are here to
provide advice and guidance
in helping you manage the
complexities of your wealth,
remember it’s your money and it’s
important you take on an active
role in managing it. Make sure to
have regular meetings with your
advisors to review your financial
goals to help you stay on track.
WEALTH OPTIMIZATION FOR PROFESSIONAL ATHLETES AND ENTERTAINERS
15Table of contents
Philanthropic goals
Individuals who lead or support a specific charitable cause are likely to increase
their monetary contributions as their income and net worth grows. Making charitable
donations (either one-time giving or over a lifetime) not only helps those in need,
but it can also reduce the amount of the donor’s taxes that would be otherwise due
in the same year as the donation. While most itemized deductions were reduced
or suspended under the 2017 Tax Cut and Jobs Act until 2026, charitable income
tax deductions are still valid as long as the donation reaches a certain threshold.
Under current tax laws, donors’ total itemized deductions must be more than their
standard deduction in order to claim the charitable deduction on their tax return —
which is $13,850 for single taxpayers and $27,700 for married couples filing jointly
in 2023.
Many wealthy athletes and entertainers elect to create their own charitable giving
structures, either through a private foundation or a donor-advised fund (DAF).
Each option has advantages and disadvantages; the best choice will depend on
the goals of the donor. Private foundations are tax-exempt organizations, generally
created and funded by an individual or a small group of donors (such as a family).
This structure is oen a grant-making entity and usually does not engage in fund-
raising or grant seeking. Typically, family members serve as the foundation’s board
of directors, officers or trustees.
Donor-Advised Fund (DAF) Private Foundation
A charitable giving account that
enables the donor to pursue
their charitable goals without
the administrative expenses of
establishing a foundation
Tax-exempt organizations, generally
created and funded by an individual
or a small group of donors
(such as a family)
However, private foundations have specific reporting requirements. In order to create
a private foundation, a trust or not-for-profit company must be formed, the new
entity must obtain an employer ID number (EIN) from the IRS, and then an application
must be sent to the IRS for “exempt status” (via IRS Form 1023). This process usually
takes anywhere from six months to two years before receiving a “determination
letter.” In addition, for charitable income tax deduction purposes, private foundations
are treated less favorably than a DAF. A foundation must file an annual income
tax return in which it must disclose the names of the directors and officers, the
foundation’s balance sheet, charitable grants and charitable recipients. Finally, a private
foundation is required to pay a minimum of 5% of its asset value each year to charity.
Donors must have itemized
deductions that are more
than their standard deduction
$13,850
for single taxpayers
$27,70 0
for married couples filing
jointly in 2023.
WEALTH OPTIMIZATION FOR PROFESSIONAL ATHLETES AND ENTERTAINERS
16 Table of contents
Donor-Advised Fund Private Foundation
Use/Role • Minimize operating costs and administrative
responsibilities
• Provide a training ground for future
generations
• Create a vehicle that can be used to
memorialize a name
• Receive distributions from Donor’s private
foundation
• Due to administrative responsibilities and statutory
compliance requirements, generally more cost
effective for gis in excess of $10 million
• Create a multigenerational charitable organization
• Provide a role for family members and/or
philanthropic training/mentoring
• Create a vehicle that can be used to memorialize
a name
Grant-making Donor makes grant recommendations that are
subject to the approval of the DAF sponsor
Donor has full control over and responsibility for
grant-making activities and decisions
Privacy Donor discretion to grant anonymously Grant activity is a matter of public record
Taxation Some excise taxes apply, such as excise taxes
on non-qualifying distributions, and excess
business holdings
• Excise tax of 1.39% on net investment income
• Payments must be made quarterly
• Possible additional excise taxes, such as taxation
on jeopardy investments, self-dealing and excess
business holdings
Required annual
distributions
None
Minimum of 5% of asset value used for “eligible
expenses” and/or distributions to eligible recipients
Reporting
requirements
None for Donor Must file annual tax return, Form 990-PF
Start-up costs None Substantial legal and accounting fees can apply
Income tax
deduction
Higher AGI limitations Lower AGI limitations
A donor-advised fund is a charitable giving account that enables the donor
to pursue their charitable goals without the legal paperwork of establishing a
foundation. This type of account is easy to open and is a very cost-effective
alternative to a private foundation. Similar to many private foundations, a DAF
is a grant-making entity. However, a DAF account owner does not have to file
an annual tax return for the DAF and/or make any other ongoing disclosures
regarding the account’s balance sheet, charitable grants and charitable recipients.
In addition, DAFs are not required to make any charitable distributions during the
year. One advantage of a foundation compared to a DAF is that the foundation can
specifically choose which organization or group receives the foundation’s grant.
The donor of a DAF can recommend making grants to specific charities, but the
grants are subject to the approval of the fund’s sponsor.
WEALTH OPTIMIZATION FOR PROFESSIONAL ATHLETES AND ENTERTAINERS
17Table of contents
Asset protection strategies
As an athlete or entertainer’s wealth grows, they unfortunately become more
prone to being sued, for legitimate and illegitimate reasons. Successful athletes
and entertainers should consider engaging in asset protection strategies that,
when implemented properly, can legally shield creditors from their assets and deter
lawsuits from ever happening. Remember, any lawsuit, whether valid or not, carries
with it “reputational risk,” which can have disastrous results like not having your
contract renewed, forfeiting deferred payments and losing key endorsements.
Property insurance
The first line of defense is to make sure that you have suitable insurance. This should
include having adequate property and casualty insurance like homeowners, automobile,
aircra, boat and umbrella insurance. Generally, the more the family balance sheet
grows, the more property and casualty insurance you should consider.
Disability insurance
The second line of defense is to acquire disability insurance in addition to what your
employer may offer. Athletes and entertainers have a range of insurance policies to
consider that can insure against permanent total disability, temporary total disability,
loss of value due to injury, or lack of endorsement(s) due to injury.
Property ownership
The next line of defense is to make sure assets are titled in such a way as to provide
maximum protection. For example, in about half the states, spouses are permitted to
hold property jointly as “tenants-by-the-entirety” (TBE). This creates a legal fiction
that each spouse is the 100% owner of the property for creditor protection purposes.
If spouse 1 is sued individually, spouse 2 of the TBE property can assert their 100%
ownership and block the creditor from the asset. Conversely, if spouse 2 is sued
individually, spouse 1 of the TBE property can assert their 100% ownership and
block the creditor from the asset. Unfortunately, the creditor protection afforded by
holding assets as TBE is imperfect. For example, if both spouses are sued jointly, then
property held as TBE offers no protection. Additionally, TBE protection only applies
to married persons. Single individuals must look to other asset protection solutions.
Additionally, if married persons hold property as TBE and they divorce or one spouse
dies, the TBE protection ends.
Protect your assets
Any lawsuit, whether valid or not, carries
with it “reputational risk” that can cause
harm to your reputation.
WEALTH OPTIMIZATION FOR PROFESSIONAL ATHLETES AND ENTERTAINERS
18 Table of contents
Business ownership
Another line of defense is to consider holding certain assets and separate business
endeavors (like a rental property) in separate limited liability companies (LLCs).
If structured and administered properly, the LLC should prevent a creditor of LLC 1
going aer the assets of LLC 2. However, if the owner of the LLC is personally sued,
and the judgment creditor wins, any of the client’s personal assets, including the
owner’s interests in LLCs, can be taken away by either a “charging order” (client
loses rights to distributions and the creditor steps into client’s distribution shoes)
and in some states like Florida and South Carolina, allow a successful judgment
creditor in certain cases to “foreclose” on LLC interests and force a terminating
distribution out to the creditor.
Unfortunately, many lawsuits that are launched against a private business (or LLC)
also name the business owners “individually” as defendants, which means that a
creditor of LLC 1 might still be able to get at the assets of LLC 2 and LLC 3, by
suing the client personally and getting a charging order or a foreclosure action
against the client’s member interests in LLC 2 and LLC 3. One possible solution
that may protect an owner’s LLC interest from being taken by a creditor might
be to contribute their LLC interests to an irrevocable trust like a spendthrigi
trust, a spousal lifetime access trust (SLAT) or a domestic asset protection trust
(DAPT). Connect with your advisor to discuss more specific details around owning
a business that applies to your situation.
Trust strategies
Finally, as mentioned above, there are numerous irrevocable trust strategies that offer
asset protection. DAPTs have become increasingly popular over the last two decades,
especially for wealthy single persons who cannot deploy protection strategies that
require a spouse. As of this paper, 21 states permit people to establish DAPTs in
their state. The good news is, you do not have to live in one of those states to take
advantage of their DAPT laws.
WEALTH OPTIMIZATION FOR PROFESSIONAL ATHLETES AND ENTERTAINERSWEALTH OPTIMIZATION FOR PROFESSIONAL ATHLETES AND ENTERTAINERS
Conclusion
Athletes and entertainers have special planning needs — driven in part by the
timing, source and reliability of their income, as well as their retirement account
options, charitable giving goals, asset protection needs, and the potential to have
second careers during or aer they’ve le their current profession.
Let us help — your Merrill advisor can offer access to the firm’s latest tools and
strategies to help you and your team discuss, build and implement your family’s
customized plan. Reach out to your Merrill advisor today or visit the Sports &
Entertainment site for more information.
19Table of contents
1
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